With the Arab spring revolution taking place in the Middle East, elections soon to take part in South East Asia and the repercussions from the death of Osama Bin Laden finally coming to a head, Asian correspondent Hafidz Baharom  looks at the current state of the political risk market for the Middle East and North Africa (MENA).

The series of political uprising which have been dubbed the  “Arab spring revolt”, which began last December in Tunisia and has now affected the entire Middle East with North Africa  with Syria and even Saudi Arabia  facing issues with civil unrest.

But underwriters have not abandoned the credit and political risk markets at present with only Libya and potentially Yemen at present on the list of area where underwriters will not consider risks by one Lloyd’s syndicate

However there is talk in the London market that there have been heavy losses shouldered by one Lloyd’s syndicate in terms of contract frustration in Libya and that the syndicate concerned may well be having second thoughts over their on-going participation in the class for 2012 and beyond.

Broker Lockton’s Managing Director Financial and Political Risks in London Peter Hornsby, cautioned the future effects on the political risk market brought about by the Arab Spring.

“As worrisome as current events in Libya may be, they yet could prove just the warm-up act for greater convulsions to come.” he said. “What if regimes should falter in proto-nuclear Iran or Saudi Arabia, home of a quarter of the world’s known oil reserves? Can we even take China’s political stability for granted now?”

Mr Hornsby added: “With the prospect of potentially prolonged instability in the affected regions, the market for terrorism and political risk will take some time to settle. The volume of claims for political violence-related losses coming into the market has been limited thus far, but rates are beginning to rise. Some insurers have increased political violence premiums by up to 25 percent for clients with exposures in the Middle East and North Africa.”

Mr Hornsby said there were lessons to learn from the Arab Spring: “The key lesson from the Arab Spring for both buyers and sellers of political risk insurance must surely be to expect the unexpected. Another lesson learned by many buyers related to their cost is that while the distinction between terrorism and political unrest is often a fine one, it can make the difference between whether a policy does or does not cover a claim. Many risk managers have a newly found appreciation for the appeal of a joined-up, seamless programme.”

Elizabeth Stephens, Partner and Head of Credit & political Risk Analysis mat broker JLT says the market has not made any knee-jerk reaction to the spread of political unrest across the MENA region.

“The market has been very cautious in over-reacting to the events we have seen in the first half of the year,” added Ms Stephens. “In effect the market has not suffered high levels of losses from the events in Libya because there was not a great deal of political risk insurance taken out by firms there because of the low perception of risk.

“In some areas the level of political risk was rates to be on a par with Italy and when you see pictures of Colonel Gaddafi shaking hands with world leaders in recent years there were many firms who believe that credit and political risk cover for their Libyan operations was not a priority.”

She explained the market was keen to keep the market open and to support its clients.

“Had the Egyptian situation escalated to the level we are seeing in Libya then the cost to insurance markets would have been far worse. As it is if you were looking to place businesses at the height of the unrest there were those markets which would quote risks but prices were three or four times the normal  levels and now they are returning to the level we saw prior to the unrest.”

Ms Stephens said markets were still keen to do business.

“Other then Libya and increasingly Yemen there are not real areas of the MENA where credit and political risk capacity cannot be found,” she added. “Indeed earlier this month we placed a risk in Syria and underwriters are taking a measured approach.”

However she cautioned that the losses of late last year and the catastrophe losses which have defined the first half of 2011 may have an effect on the political risk and violence classes.

“There were same losses in 2010 and on a wider P&C market there have been some heavy claims already this year. That will turn areas of the market and we have to consider whether underwriters will be looking to move capacity into other classes which they deem to be less volatile and have the higher potential for returns.

“We also have to factor in any reaction from the reinsurance markets at future renewals because if they increase prices and tighten terms it will have an effect on the primary markets.

Broker Willis has issued its view on the implications of Arab Spring uprisings believing that the market has to ensure that it learns the lessons from recent events.

One of those lessons is that the industry needs to broaden its thinking in terms of the causes. Where in the past the threat of political risk has often been associated with government activity, recent events have clearly shown that popular uprisings are now a major source of threat.

It also pointed out that political upheavals, such as the Arab Spring, bring into clearer perspective the threat to international workers. The broker has highlighted reports that within Libya prior to a mass international evacuation, overseas workers were being caught in the crossfire while trying to flee what rapidly became a civil war. Foreign media which have always been viewed as high risk have been caught up in the trouble not only for those covering the heavily armed struggle in Libya but a high profile female journalist with a US news network being attacked and assaulted in Cairo as she covered the demonstrations.

One of the biggest risks remains that of global transportation and trade with Willis highlighting the immediate concerns which were expressed following the Egyptian uprising overt he future security of the Suez Canal the closure of which would have badly impacted the maritime supply chain.

Willis said: “Amidst the drama of the Arab-speaking populations attempting to take control of their political future, those of us in the risk business should seize on this moment to take control of the political risks we face in an increasingly global marketplace.”

James Bond, the Chief Operating Officer of Multilateral Investment Guarantee Agency, said the  that the most obvious lesson from the Arab Spring is that past stability is no longer a good predictor of future calm.

The MIGA, is member of the World Bank Group, with a mission is to promote foreign direct investment (FDI) into developing countries to help support economic growth, reduce poverty, and improve people's lives. Its key weapon to do so is the provision of political risk insurance to the private sector.

Mr Bond said however the current storm in the region may well have a silver lining if the Arab Spring delivers a greater level of democracy to certain nations in the region which have been run by administrations which have not sought to reward enterprise and innovation. He added that if access to power is replaced by a “more open economic system based on competitive advantage”, it could stimulate economic trade and investment.  He added it was clear investors need to build risk mitigation even for almost unforeseeable events into their investment plans.